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Sri Lanka’s income inequality stagnant for the last 25 years

The rich and poor gap has remained stagnant for the past 25 years in Sri Lanka at 36%.

There is a 36% difference between the total household income received by the poor and rich households, according to the National Estimate of Accounts survey carried out by the Department of Census and Statistics for the second quarter of 2007.

While the poorest 10% of households receive only 2% of the total household income, the richest 10% of households receive 38% and this pattern has apparently remained unchanged over the last 25 years.

“Average monthly household expenditure for the country is Rs 22, 671 in 2006,” said Director General Department of Census and Statistics Suranjana Vidyarathne. “The increase in real terms (after removing the effect of inflation of prices) from 2002 to 2006 is 17 percent.”

Furthermore, she mentioned that out of the monthly household expenditure Rs 8105 was spent on food and drink and the total non-food expenditure amounted to Rs 14, 565.

“In 1990 64.5 percent out of total expenditure was spent on food while in 2006 it decreased to 35.8 percent,” she explained adding that most of the expenditure went for housing, transport and communication costs.

It was also pointed out that urban sector households spend Rs 37, 978 per month and an average household in the rural sector spends Rs 20,620 per month.

The country’s GDP growth rate for the second quarter was 6.4% while the GDP growth rate was 7.7% for the same quarter of last year, clearly indicating a dip recorded this year.

This fall in the growth rate has been due to the fact that prevailed rainfall was not so favourable for the Hydro power generation in the second quarter of 2007 along with the continuation of uninterrupted power generation and distribution during the reference period.

“However, satisfactory economic performance experienced in countries like USA, Japan and European region had favourable effects for better external trade and economic performance during the second quarter of this year,” she said adding that the introduction of favourable fiscal and financial management policies under the ‘disturbed situation in the country’ led to a good GDP growth rate this year.

“The economy is showing encouraging performance for all three main sub sector of Agriculture, Industry and services of GDP,” she said. The industry sector grew by 7.5% and the total services sector grew by 6.5 percent while the agriculture sector has shown a 3.5 percent growth according to the Department.

While the inflation rate grew to 17.3% during the first quarter of this year, it was mentioned that according to the department’s calculations the inflation rate decreasing 12% to 13 %was hoped by the end of the year.

“The Inflation Rate based on GDP Implicit Price Deflator indicated 13.5 percent for the second quarter of 2007 as against that of 2006 and this GDP Implicit Inflation rate was 12.0 percent for the second quarter of 2006,” Vidyarathne said.

Furthermore, the department said that the trade deficit decreased to negative US$ 659.6 million for the second quarter of this year and it was negative US$ 783.8 million for the same quarter of 2006 as indicated in the Balance of Payments (BOP). The over all net value of BOP was US$ 239.8 million for the reference period over the US$ 151.0 million for the same quarter in 2006. This is regarded an improved situation in the BOP.

Remittance from foreign employment went up to US$ 646.3 million indicating a 12.2% increase for the second quarter of this year compared to the same period in 2006.

“With these macro economic factors, rupee value has to appreciate. But this rupee depreciation cannot be explained through the basic economic fundamentals,” it was mentioned bringing to mind what the Central Bank also recently stated, that this rupee depreciation was ‘Unwarranted’.